Walgreens Boots Alliance stock cut its dividend significantly. Is it time to buy?

of walgreens boots alliance (W.B.A. 3.09%) We just made a historic move. The company cut its dividend after 47 consecutive years of increasing dividends. The drugstore chain has struggled with flat sales, expensive lawsuit settlements over opioid claims and woes at its clinics.

Still, the dividend cut was a dramatic move when the company was just three years short of its title as Dividend King. The question for investors is whether the drop in stock price makes Walgreens a good buy, or whether the retail stock brings more uncertainty to investors’ portfolios.

Why Walgreens cut its dividend

Indeed, many investors probably won’t be surprised that the company made this decision. The drugstore business is becoming increasingly competitive as more customers turn to retailers such as: walmart, costco wholesaleand recently, Amazon To fill prescriptions.

Additionally, Walgreens and some of its competitors were found to be responsible for creating an opioid crisis that has killed an estimated 500,000 people over 20 years. Walgreens’ share of the settlement called for a payout of $5.7 billion over 15 years.

Walgreens was looking to grow by opening VillageMD clinics within its pharmacies. But in October, the company announced it would close 60 unprofitable clinics as part of a $1 billion cost-cutting strategy.

Currently, the next cost that Walgreens has cut is dividends. The annual dividend will decrease from $1.92 to $1.00 per share, saving the company approximately $797 million. Given its negative free cash flow of $788 million in the first quarter of fiscal 2024 (ending November 30), among other challenges, the company has no choice but to lower its dividend burden. There may have been very little.

Walgreens’ current position

Unfortunately, lower dividend costs may not be enough to attract fans to the stock. Investors will still receive a dividend yield of approximately 4.25% after the dividend cut, which is much higher than the dividend yield. S&P500The average is 1.5%.

First fiscal year revenue increased 10% to $37 billion. Nevertheless, gross profit decreased slightly due to higher cost of goods sold. Walgreens also reported a net loss of $278 million in the quarter. With only $784 million in cash, it has little cushion to incur losses and maintain its remaining dividends long term.

Looking forward, the company expects to break even on adjusted EBITDA in fiscal 2024. adjusted EBITDA means that losses will continue for some time.

Additionally, the fact that VillageMD has closed many of its clinics bodes poorly for its growth, leaving the drugstore giant with no clear path to sustainable revenue growth.

Avoid Walgreens Boots In Stock

Unfortunately for Walgreens shareholders, the dividend cut likely won’t be enough to turn around the stock price. The company is still plagued by multiple chronic diseases, and there is nothing on the shelves that offers a cure.

Reducing the dividend burden can save a lot of cash. But the company faces intense competition, expensive opioid solutions and poor clinic performance.

Additionally, confidence in the company’s stock is likely to decline as the company moves away from its 47-year history of increasing dividends. The end of this streak gives the company a huge incentive to cut its dividend even further as the pain continues. Therefore, investors should probably consider selling this stock to prevent further contagion in their portfolios.